CMS Issues Guidance on Policy and Payment Issues Affected by Introduction of Biosimilars - McDermott+Consulting

CMS Issues Guidance on Policy and Payment Issues Affected by Introduction of Biosimilars

Three recently released documents address some the complexities associated with how biosimilars will fit under Medicare Part B, Medicare Part D and the Medicaid Drug Rebate program.

On March 31, 2015, the Centers for Medicare and Medicaid Services (CMS) issued three separate documents addressing a range of policy and payment impacts resulting from the recent U.S. Food and Drug Administration (FDA) approval of Zarxio (filgrastim-sndz), the first biological product approved under the biosimilar approval pathway.

The Biologics Price Competition and Innovation Act of 2009 created an abbreviated approval pathway for biological products shown to be biosimilar to, or interchangeable with, an FDA-licensed biological reference product. While the FDA has released several guidance documents surrounding the approval process, until now CMS has been silent on how biosimilars will be treated under Medicare and Medicaid.

The newly released documents begin to address coding and payment under Part B, formulary placement under the Prescription Drug Program (Part D), and ways in which state plans may take advantage of biosimilars to reduce costs and increase access to care under Medicaid.

Part B

Medicare sets payment limits for most physician administered drugs at the average sales price (ASP) of the drug plus 6 percent (ASP+6 percent). The Medicare payment limit for single source drugs and biologicals is based on the ASP of the branded product, whereas the payment limit for multiple source drugs is based on a weighted average across the ASPs of all of the drugs (branded and generic) for the specific non-proprietary drug name. Under Medicare law, biologicals are defined as single source products.

The payment limit for biosimilars is a hybrid calculation, using the ASP of both the biosimilar and the reference biological. Under a formula established by the Affordable Care Act, the payment limit for a biosimilar is the sum of the ASP for the biosimilar product and 6 percent of the ASP for the reference biological. The recently released CMS document confirms this calculation.

It remains unclear how CMS will calculate a payment limit when multiple biosimilars are available for a single reference biological. CMS may interpret the law to require separate rate-setting for each biosimilar at the sum of the ASP for the specific biosimilar plus 6 percent of the reference product, or CMS may interpret the law to allow the agency to aggregate the ASPs across all of the biosimilars and add 6 percent of the reference product’s ASP to that amount. Moreover, President Obama’s budget recommends that the payment limit for biosimilars be set at 106 percent of the weighted average ASP across both the reference and biosimilar products. The latter approach, however, would require new legislation.

The document does make clear that, for coding purposes, CMS will establish a separate HCPCS code to distinguish the biosimilar product from the reference product. CMS expects to have the unique HCPCS code for Zarxio available July 1, 2015, and the code will be effective retroactive to the date of FDA approval of the biosimilar. Additional codes will be added as the need arises.

Part D

Under Part D, plan sponsors use prescription drug formularies to help manage utilization and encourage the use of lower cost drugs. CMS requires that Part D formularies be non-discriminatory and provide beneficiaries with choices among prescription drug products.

The biosimilars document enforces these general rules by encouraging plans to include biosimilars to their formularies at any time as formulary enhancement.

Under Part D, Prescription Drug Plans (PDPs) must cover at least two drugs in each covered therapeutic class. For the purposes of this rule, CMS has determined that biosimilars and their associated reference product will not be considered different drugs. PDPs will be allowed to add biosimilars as a formulary enhancement at any time. However, CMS notes that the addition of a biosimilar and the associated removal of a reference biologic will be considered a “non-maintenance” change, thus triggering review and approval by CMS. In order to secure CMS approval, non-maintenance changes must not affect a formulary’s adherence with standards, and enrollees using the affected biologic must continue to be provided access.

At the same time, biosimilars and their reference biologicals will be considered different drugs for the purposes of transition and notice requirements under Part D. If a beneficiary is taking a reference product and the biosimilar is the only product on formulary, the PDP must provide a transition supply of the reference product. Similarly, if a beneficiary is taking a biosimilar and the reference product is the only product on formulary, the PDP must provide a transition supply of the biosimilar.

The document also notes the implications of beneficiary cost sharing, specifically noting that, for the purposes of the Part D benefit, a biosimilar fails to meet either the regulatory definition of a generic drug (that is, a drug approved under section 505(j) of the Federal Food, Drug and Cosmetics Act) or the statutory definition of a multiple source drug (a covered outpatient drug with at least one therapeutically, pharmaceutically equivalent or bioequivalent drug product). As such, under Part D, beneficiaries eligible for the low-income subsidy will be responsible for a higher copayment for biosimilars than they would be if they were to have met the definition of a multiple source drug. Similarly, non-low-income-subsidiary-eligible beneficiaries who are subject to the catastrophic level of coverage will pay a 5 percent copayment, the same rate paid for single source drugs.


State Medicaid plans are encouraged to drive the use of cost-effective treatments by using biosimilars when these products are more cost effective and can increase access to traditionally expensive prescription treatments. Utilization management tools such as prior authorization and step therapy can be used to encourage the use of biosimilars, and states are urged to encourage providers to prescribe biosimilar products.

Under a Medicaid Drug Rebate Program Notice, CMS indicated that for the purposes of the Medicaid Drug Rebate program, biosimilars meet the definition of single source drugs. States thus may consider combined rebates from both biosimilars and reference biologics when developing preferred drug lists.


The recently released documents shed light on some the complexities associated with how biosimilars will fit under three separate drug programs that CMS administers—Medicare Part B, Medicare Part D and the Medicaid Drug Rebate program. Although providing some initial answers to questions about coding and payment for biosimilars, many questions remain, and some of these questions may have different answers across the three drug payment programs. Each program still must determine how it will price biosimilars when multiple biosimilars of the same reference product are approved and marketed. In addition, each program must consider how a biosimilar that is approved as interchangeable with a reference biological will be treated.